Plan Aims To Save Partnerships

Trustee's Plan Aims To Save Some Colonial Partnerships

A proposal that advocates say is the first step toward saving some of the real estate limited partnerships organized by Colonial Realty Co. is pending in U.S. Bankruptcy Court in Hartford.

The plan proposes to set up a new company to take over the partnership roles that are now held by Jonathan Googel and Benjamin Sisti, Colonial's two founders. That new company would then try to restructure the finances of the real estate partnerships to allow them to stay in operation -- and to give investors in those partnerships a chance to recover some of the tens of thousands of dollars they put into the deals during the past 25 years.

In return, the proposal calls for investors to give up an estimated $1.1 billion of claims for damages that they have filed against Colonial, Googel and Sisti.

The plan has been proposed by Hal M. Hirsch, the trustee overseeing Colonial's bankruptcy case. A hearing on the issue is scheduled for Aug. 14 before U.S. Bankruptcy Judge Robert L. Krechevsky in Hartford.

Details of the proposal still are being negotiated among Hirsch, representatives for Googel and Sisti, investors and some of Colonial's creditors. Consequently, most of the lawyers involved in the talks would not comment publicly on the plan.

Privately, however, many say that the proposal represents the first positive news for Colonial investors since Colonial, Googel and Sisti were forced into bankruptcy in September.

But those lawyers stop short of saying that the plan will guarantee the survival of every Colonial-sponsored partnership. They said some of those partnerships are so deeply in debt that there is nothing that can be done to save investors' money.

Hirsch was appointed to oversee Colonial's bankruptcy case in May, and is now trying to liquidate the assets of the West Hartford company to repay its creditors.

Googel's and Sisti's individual bankruptcy cases had been proceeding under Chapter 11 of the bankruptcy code, allowing them to stay in control of their finances while working out a debt repayment plan. Their cases are scheduled to convert to a Chapter 7 on Aug. 15, however, meaning their assets would then be liquidated

to repay creditors.

And such a liquidation could be disastrous for the more than 5,000 people who have invested in Colonial's real estate partnerships.

Googel and Sisti formed about 60 real estate limited partnerships during the past 25 years. The partnerships own apartment complexes, hotels, office buildings and shopping centers in Connecticut and several other states. In most cases, Colonial managed those properties under contract with the partnerships.

Googel and Sisti sold shares in the partnerships to investors, or limited partners, for $25,000 to $50,000 a share. The two men then served as general partners, making them responsible for managing the partnerships, keeping their books and records, paying their taxes and managing the properties the partnerships owned.

Legal documents that set up the partnerships specify that the partnerships must dissolve if the general partners -- Googel and Sisti -- are declared bankrupt. That declaration will happen on Aug. 15, when Googel's and Sisti's bankruptcy cases are converted to liquidations.

But if the partnerships are dissolved, investors would lose all of the money they put into the deals. Some investors also would face hefty federal income tax penalties -- perhaps $50,000 or more -- if their partnerships are dissolved, depending on what kind of tax write-offs the partnerships provided.

So the proposal now pending in bankruptcy court is designed to remove the partnerships from the bankruptcy process, and give investors' lawyers control over the partnerships and time to restructure their finances.

The plan also calls for investors to share in a pool of money that Hirsch might recover from selling Colonial's contracts to manage the partnerships' real estate. The exact amount of that pool is unknown, because it depends upon finding another real estate company that is willing to pay for the rights to manage the properties owned by the limited partnerships.

In return for control over the partnerships and a chance to salvage their investments, the plan calls for investors to give up $1.1 billion of claims they might have against Colonial, Googel and Sisti.

Lawyers for investors, however, say that isn't much of a concession. They said other creditors of Colonial, Googel and Sisti are owed $1 billion or more, and those claims have a higher priority for repayment than investors' claims.

So while it is unclear how much money eventually will be found to repay Colonial creditors, investor lawyers said it is unlikely that there will be enough remaining to pay investors.